iRobot 2014 Annual Report Download - page 123

iROBOT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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Expenditures for additions, renewals and betterments of plant and equipment are capitalized. Expenditures for repairs and
maintenance are charged to expense as incurred. As assets are retired or sold, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is credited or charged to operations.
Long-Lived Assets, including Purchased Intangible Assets
The Company periodically evaluates the recoverability of long-lived assets, including other purchased intangible assets
whenever events and changes in circumstances, such as reductions in demand or significant economic slowdowns in the
industry, indicate that the carrying amount of an asset may not be fully recoverable. When indicators of impairment are present,
the carrying values of the asset group are evaluated in relation to the future undiscounted cash flows of the underlying business.
The net book value of the underlying asset is adjusted to fair value if the sum of the expected discounted cash flows is less than
book value. Fair values are based on estimates of market prices and assumptions concerning the amount and timing of
estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.
Goodwill
Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair
value of the net tangible and intangible assets acquired. The Company evaluates goodwill for impairment at the reporting unit
level (operating segment or one level below an operating segment) annually or more frequently if the Company believes
indicators of impairment exist. In accordance with the guidance, the Company is permitted to first assess qualitative factors to
determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the
Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a
two-step goodwill impairment test is performed.
The first step of the impairment test involves comparing the fair values of the applicable reporting units with their
aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit's fair value,
the Company performs the second step of the goodwill impairment test to determine the amount of impairment loss. The
second step of the goodwill impairment test involves comparing the implied fair value of the affected reporting unit's goodwill
with the carrying value of that goodwill. The Company completes the annual impairment evaluation during the fourth quarter
each year.
Research and Development
Costs incurred in the research and development of the Company’s products, classified as cost of revenue and research and
development, are expensed as incurred.
Internal Use Software
The Company capitalizes costs associated with the development and implementation of software for internal use. At
December 27, 2014 and December 28, 2013, the Company had $8.2 million and $8.2 million, respectively, of costs related to
enterprise-wide software included in fixed assets. Capitalized costs are being amortized over the assets’ estimated useful lives.
The Company has recorded $0.8 million, $0.9 million and $1.0 million of amortization expense for the years ended
December 27, 2014, December 28, 2013 and December 29, 2012, respectively.
Concentration of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to concentrations of credit risk consist of accounts
receivable. Management believes its credit policies are prudent and reflect normal industry terms and business risk. At
December 27, 2014, two customers accounted for a total of 32% of the Company's accounts receivable balance, each of which
was greater than 10% of the balance and each of whom secured their balance with guaranteed letters of credit. At
December 28, 2013, two customers accounted for a total of 37% of the Company’s accounts receivable balance, each of which
was greater than 10% of the balance and each of whom secured their balance with guaranteed letters of credit. For the years
ended December 27, 2014, December 28, 2013 and December 29, 2012, revenue from U.S. federal government orders,
contracts and subcontracts, represented 4.3%, 6.2% and 15.1% of total revenue, respectively. For the fiscal years ended
December 27, 2014, December 28, 2013 and December 29, 2012, the Company generated an aggregate of 29.8%, 33.2% and
30.6%, respectively, of total revenue from its home robots distributor in Japan and a network of affiliated European distributors
of its home robots.
The Company maintains its cash in bank deposit accounts at high quality financial institutions. The individual balances,
at times, may exceed federally insured limits.
Form 10-K